Why Is Marketing So Expensive?
Marketing is expensive for one simple reason, because it’s at the core of making money for all businesses. This may seem counterintuitive to some, but marketing is not just an expense. It is what drives revenue for all of the most successful businesses.
One of your business goals is hopefully to generate a certain amount of revenue. How do you do this? You attract more customers and try to maximize the lifetime value of those customers. And that is the science of marketing — attracting potential customers and satisfying existing customers.
We’ll discuss two of the biggest things to consider when thinking about why exactly this makes a lot of people think that marketing is so expensive. We’ll also touch on if there are any truly cheap marketing options.
First, you have competition. Your marketing efforts are competing with those businesses’ marketing efforts. Second, business is not an “if you build it, they will come” type of situation. Even without competition, you still need to educate, attract, and retain your customers.
Business is a Competition
At the end of the day, business is a competition to a certain extent. It’s not a zero-sum game either. Every business is still always competing against other businesses that sell the same or a similar product or service. If you think you have no competition and you are 100% safe, you are wrong.
If you’re a small local business, you could even be facing competition from more angles than you think. A restaurant obviously is competing with other local restaurants. It’s also to a certain extent competing with local grocery stores.
If you’re a local sandwich shop or even Subway, you’re definitely wrong to not think of a grocery store as a competitor. According to Thrillist, the Publix supermarket chain sells the best sandwich in the entire United States. The claim could be disputed, but the fact remains that the competition is real.
Whatever industry you are in, there is competition, and often it’s what drives the cost of marketing in your industry. The number of competitors, how direct or indirect the competition is, and their marketing budgets all play a large role in determining your ideal marketing budget.
Everyone Has Competition
Competition is a reality for all companies. Even super powerful oligopolies — markets with few competitors and limited competition — like smartphone operating systems or the airline industry have competition, and therefore spend a lot on marketing.
First, these companies still can compete with each other. Google and Apple are still competing for dominance in the smartphone arena, right? Second, shifts in industries can make room for new competitors.
Oligopolies like Airlines
Take the airline industry. According to a report by The Federal Reserve Bank of St. Louis, low-cost carriers like Spirit Airlines have increased the level of competition in this previously oligopolistic industry. This “Southwest Effect” is an example of how businesses in all industries need to engage in strategic marketing planning.
Delta Airlines, according to their own annual report, spent $284 million on marketing in 2017. That is 0.7% of their revenue ($41.2 billion) and 7.9% of their net income ($3.6 billion). That’s not a super high percentage, but it’s still a lot of money being spent in an industry with arguably few competitors. It also doesn’t necessarily include all non-advertising marketing expenses.
Protected Products like Art and Secret Recipes
This applies even when you sell things that are one of a kind or have intellectual property protection. Art, music and movies are great examples. All three can be copyrighted, but people can still choose to buy other similar music or movies.
Selling unique one-of-a-kind products can be a great business strategy. It, however, doesn’t immunize you from competition or the need to market those products.
According to Variety, big Hollywood films routinely spend $150–$300 million on promotion and advertising. Keep in mind that the top 50 most expensive movies of all time had production costs between $216 and $479 million. Marketing matches and can even outpace the actual production costs.
Another example of a protected product is the Coca-Cola formula. It is a trade secret, but that doesn’t stop Pepsi and other beverages from vying for those customers. And Coca-Cola, that obviously also sells many other products, knows this and that is why they spend billions every year on marketing.
There is no secret or trick that can stop competition. If you’re in business, you are constantly competing to gain and maintain market share. This is accomplished, literally by definition, through marketing efforts.
Business is Not like the Movie Field of Dreams
In the 1989 fantasy-sports film about a fictionalized version of Shoeless Joe Jackson, where the protagonist, a farmer, is told “if you build it, he will come.” He was supposed to build a baseball field. When he does, dead baseball players come to play at his field.
Well, that movie was fantasy. If you build a baseball field, in reality, dead baseball players will not show up. If you build a business, customers will not magically appear either. Without marketing, neither baseball nor other business ventures work.
Even if you’ve studied your competition, and you think they are weak, you still need marketing. As we’ve discussed, marketing is an integral part of business. Even if you ignore it, it’s still happening. It will just be a question of how successful your marketing efforts are at making your business more profitable.
Not All Marketing is Equal
Marketing is important, but not all marketing and marketers are created equal. You definitely don’t want to waste money on digital marketing efforts that have no hope of succeeding. This is the quickest way to make marketing more expensive than needed.
Some people who think marketing is too expensive, lack the necessary information and experience with marketing. Lack of knowledge within your organization, or through a trusted partner, is the quickest way to get into trouble with marketing.
In these cases, businesses often can end up spending tons of money on ineffective marketing. This leaves them with less to spend on good marketing and makes their overall marketing strategy unsuccessful. This leads many entrepreneurs to get frustrated, and quit marketing altogether.
Worse yet, some unscrupulous marketers use this to their advantage. They try to hustle people out of money. You’ve probably seen digital marketing gurus telling you in Facebook ads about the latest and greatest marketing tactic. Be skeptical, there are no shortcuts or silver bullets.
Some of those marketing gurus and ninjas do teach entrepreneurs about marketing or sell useful tools to help. However, other times they prey on the fact that some percentage of people are really frustrated with marketing, and are looking for answers and help.
Spending a lot on these purported experts can make your marketing efforts even more expensive. If you haven’t vetted them, you could end up wasting even more money on marketing. If you don’t learn anything, or their techniques don’t work, you’d have been better off spending that money direct, on actual marketing efforts.
Cheap Marketing Can Be Expensive Too
Maybe you know marketing is important, but you’re low on capital or just getting started. Are there any cheap options out there? It depends a lot on the entrepreneur’s skillset, patience, and work ethic. And even then, it can get expensive in terms of actual money and opportunity cost.
The most important, but underrated thing you can do is to first develop a strategic marketing plan. Basically, figure out what you want to do before you do it. False starts and constantly starting and stopping marketing efforts will burn through your time and money. Successful marketing efforts are measured in months and years and not days.
Next, focus on what you can do yourself. Do some research on the latest marketing trends. Look for places that are not saturated yet. Explore underutilized or contrarian techniques, guerrilla marketing efforts, and earned media with the press.
Those are typically where you can find the “best deals” in marketing, especially if you’re not as experienced. If you try to market your business on a saturated platform like Facebook or Google, you’re going to be competing with the biggest companies and the savviest marketers.
Even the new platforms and techniques will not stay new, as more people realize they are profitable vehicles for marketing. Bigger companies will move in and spend more money. This can saturate the platform or create fatigue with the technique.
In this case, what was cheap marketing will become expensive. Consider the opportunity cost as well. If you spend a lot of your time becoming a marketing expert, that is time not spent otherwise running your business. These sorts of hidden costs, can add up, and make apparently cheap marketing an expensive alternative.
Is Marketing Really Expensive?
The reality is that marketing can be expensive. It can also be inexpensive. What you really want to focus on, is the question of whether your marketing efforts are profitable.
Expensive just means that something costs a lot of money. But what if spending that money would yield significantly more money?
If you have the capital, you should spend as much money as you can on marketing efforts that have a positive return on investment (ROI). If you do, you will end up with a bigger, better, and more profitable business.
This is the reason all successful businesses spend money investing in marketing efforts. And that is really how you have to think about marketing: as an investment.
You need to strategize carefully. The best marketing rewards for your business often require the largest monetary investments. You are also competing against other businesses. All other things being equal, if your competition is spending significantly more on effective marketing efforts, they will crush you.
Some entrepreneurs will pretend marketing is hogwash. The reality is that marketing has been around for a long time, and it is fundamental to business. The people who engage in it best, will end up at top. The people who ignore it, may get lucky, and engage in great marketing efforts by happenstance. But these people are few and far between, and in the long run they always fail.
Do you have a positive or negative experience with spending money on marketing? Did you spent a lot of money or time on an expensive marketing effort in the past? We’d love to hear your story or any other feedback in the comments.